The IIS University

7/30/2019 The IIS University

1/15

The IIS UniversityCOST ACCOUNTING PROJECT

PROCESS COSTING

Submitted to

Mr. Ashish

Khandelwal

Submitted by-

Anjali Gurejani

Anukrati Gupta

Harshika Gupta

BBM Sec A Sem VI


2/15

Process Costing : Meaning

Process costing is the method used in industriesin which raw materials passes through variousprocesses to be converted into finished goods.Example include chemical, flour and glassmanufacturing.

It computes the average cost per unit by dividingthe costs or production for a particular period bythe number of units produced during the period.

According to Weldon,Process costing is a method of costing used to ascertain the cost ofproduct at each process, operation or stage of manufacture.


3/15

Characteristics

Homogeneous unitspass through aseries of similarprocesses.

Each unit in eachprocess receives asimilar dose ofmanufacturing

costs. Manufacturing costs

are accumulated fora process for a

given period of time.


4/15

Direct material

Direct labour

Overheads

Direct material

Direct labour

Overheads

Direct material

Direct labourOverheads

Process 1

Process

2

Process 3

Finishedgoods


5/15


6/15

Elements of Process Costing

Direct material

Added at the beginning, during, and/or at

the end of process

Direct laborAdded throughout the process

Overhead

Added throughout the process Based on direct labor

Based on other, multiple cost drivers


7/15

Accounting for Process

Costing Costs are accumulated by each process Each process maintains its process

account The process account is debited with the

costs incurred and credited with goodscompleted and transferred to otherprocess account

When the goods are completed, they will

be transferred to finished goods account When the goods are sold, the amount

will be transferred to the cost of goodssold account


8/15


9/159

Joyce Ltd. operates a factory involving two production

Processes. The output of process 1 is transferred to process

2. The information of production for January 2005 is as

follows:

Cost for Process 1

Materials: 3000 units at Rs 5 per unit

Labour Rs 2400

Cost for Process 2

Materials: 2000 unit at Rs 8 per unit

Labour Rs 1680

No opening and closing work in progress

Output for January 2005

Process 1: 2300 units

Process 2 4000 units


10/1510

General overhead, for January 2005 amounted to Rs7140,

are absorbed into the process cost at a rate of 375% of

direct labour costs in process 1 and 496.4% of direct labour

cost in process 2.

The normal output of process 1 and process 2 is 80% and

90% of input respectively

Waste matters from process 1 and sold for Rs4 per unitand those from process 2 for Rs6 per unit

Prepare Process Accounts for

(a) Process 1

(b) Process 2

(c) Abnormal loss

(d) Abnormal gain


11/1511

Process 1 account

Units Rs Units Rs

Labour 2400

Materials 3000 15000

(Rs5 *3000)

Overhead 9000

(2400*375%)

Process 2

(Rs10*2300) 2300 23000

Abnormal loss

(Rs10 *100) 100 1000

3000 26400 3000 26400

Scrap: normal loss

(4*600) 600 2400

Cost per unit

= Normal cost

Normal output

= Rs26400-Rs2400

3000-600

= Rs10 per unit


12/1512

Process 2 account

Units Rs Units Rs

Labour 1680

Materials 2000 16000

Overhead 8340

(1680*469.4%)

Finished goods

(Rs12*4000) 4000 48000

Abnormal gain

(Rs 12 *130) 130 1560

4300 49020

Scrap: normal loss

(Rs 6*430) 430 2580

Cost per unit

= = Rs 49020- Rs 2580

4300-430

= Rs 12 per unit

Process 1 2300 23000

4430 50580 4430


13/1513

Abnormal loss account

Units Rs Units Rs

Process 1 100 1000 Scrap 100 400

Profit and loss 600

100 1000 100 1000

Abnormal Gain account

Units Rs Units Rs

Process 2 130 1560Scrap: value of

abnormal gain 130 780

Profit and loss 780

130 1560 130 1560

Loss on scrap value due to abnormal gain


14/15

Interpretation

In Process 1, the cost per unit incurred is Rs 10per unit. Out of 3000 units that were input , only2300 units were transferred to Process 2 . The

rest 600 were normal wastage and 100 wereabnormal.

In Process 2, the cost per unit incurred is Rs 12and there is a gain of 130 units in the process.

After both the processes it was inferred thatabnormal gain was Rs 1560 (130 x 12) and thetotal abnormal loss was of Rs.1000.

It is shown that Rs 600 were credited into P&La/c and Rs 780 were debited in the same.


15/15

Thank you!!!!!!

Documents

The IIS University